Autos: Back on the Fast Track

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Contrary to all expectations, the U.S. has become one of the world's lowest- cost producers of cars, thanks mainly to a decade of ruthless job cuts, large investments in technology and the ever widening gap between dollars and yen. One result: profits are returning. So far this year, all three companies have posted gains for the first time since 1984, and sales next year may break through the 15 million-unit barrier. All told, GM's Smith estimates, the recovering industry is now strong enough to add 1 1/2% -- $20 billion -- to the nation's gross domestic product in the last quarter of this year.

"It's been a long time, but you always thought of the U.S. auto industry as the engine of economic recoveries in the 1950s and '60s," says Smith. "I think we could be that kind of locomotive again."

That is an inspiring thought, barely imaginable even a few years ago when Detroit was mired in the worst economic crisis in the history of the auto industry. Collectively, the Big Three carmakers share the unholy distinction of having lost more money in the past three years in the core North American market than they made there throughout the entire 1980s. By the end of this year, their losses will have reached some $51 billion -- more than $38 billion at General Motors alone.

GM has been so badly gutted by those losses that its U.S. business last year actually had a negative net worth of $5.7 billion, an alarming figure that not only precipitated former chairman Stempel's fall but caused some of the company's directors to seriously consider taking the giant corporation into bankruptcy as late as 1991. Chrysler nearly went bankrupt twice: once with great fanfare and publicity in the early 1980s, and once quietly and painfully in the early 1990s. The K-cars and minivans (and a government bailout) saved Chrysler the first time, and the LH cars the second. Ford survived the near collapse of its automotive business in the 1980s and has seen its market share steadily recover since 1990. Even Ford's financial resources could not protect the No. 2 automaker from a $9.3 billion loss over the past three years.

But the critical state of the industry's finances may not have been the worst of its problems. Detroit's real enemy is its past, in an old and dying industrial culture of family intrigues, power struggles and near feudal domains. In the auto industry's view, the Big Three did not lose momentum and market share; the hypercompetitive Japanese carmakers stole them. This form of corporate denial persisted in much of Detroit until just a few years ago.

"I thought they were a bunch of Neanderthals," says John McTague, Ford's vice president for technical affairs, who was offered that job in the mid-' 80s, while serving as President Reagan's science adviser. "They were in trouble, they were way behind the technological curve, they didn't have a hell of a lot of future and they deserved themselves. These guys were a bunch of losers. The U.S. auto industry was the kind of place you didn't want to be." Says GM's executive vice president Bill Hoglund with a candor that would have buried his career under earlier GM regimes: "There were few honest bones in the industry. There was no debate, no discussion, no nothing -- just knives and backsides."